Fiscal drag is damaging growth, says Bank rate-setter
In This Article:
Frozen personal tax thresholds are damaging economic growth, a Bank of England rate setter has warned.
Catherine Mann, a member of the Bank’s Monetary Policy Committee, said that people on middle incomes had seen their purchasing power hit not just by goods inflation but because they are now paying higher rates of interest tax.
She said: “This middle income group is an especially important one. They have been exposed to a relatively greater degree to tax-bracket creep.
“Under inflation, more of this group had more of their income creep into a higher tax bracket. This is an important consideration for purchasing power in the current environment.”
She said that the Bank of England had concluded that frozen thresholds were “a significant drag” on economic growth.
Although the Government has pledged not to increase income tax rates, Rachel Reeves, the Chancellor, is reportedly planning to extend a freeze on income tax thresholds in a move that will raise £7 billion a year.
This would extend the phenomenon known as “fiscal drag”, where people with the same income in real terms find themselves pulled into high income tax rates as a result of inflation.
Ms Mann also warned that Britain’s economy still faces “a lot more inflation”.
Inflation fell further than expected to 1.7pc in September, which is below the Bank of England’s 2pc target.
However, Ms Mann told a panel in Washington that price deceleration would “not quite” get Britain sustainably to the 2pc in the medium term.
She added there was no prospect of interest rates returning to their pre-pandemic levels, having remained below 1pc since 2009 in the wake of the global financial crisis.
Read the latest updates below.
06:42 PM BST
Signing off...
Thanks for joining us today.
The Markets blog will be back in the morning, but here are few articles well worth reading in the meantime:
06:30 PM BST
UK bond yields rise as Reeves changes Budget rules
British government bonds underperformed against German and US debt on Thursday on speculation - later confirmed - about a change in the Government’s borrowing rules.
The yield premium for 10-year UK gilts over German bonds increased by 0.08 percentage points..
Conservative former finance minister Jeremy Hunt - whose party suffered a heavy defeat to Labour in July - said on X that “markets were watching” Reeves’ plans.
“The consistent advice I received from Treasury officials was always that increasing borrowing meant interest rates would be higher for longer,” he said.
Asked what her message was to investors, Ms Reeves said she was committed to borrow only for long-term investment.
“It’s not to pay for day-to-day spending. It’s not to pay for tax giveaways. It’s to invest in things to get a long-term return for our country and for taxpayers,” she said.
“We will get debt down as a share of the economy,” she added.
Earlier this week, the IMF stressed the importance of Britain and other countries lowering debt, which it defines differently.
Today, the IMF’s deputy director for Europe, Helge Berger, said the Fund would want to study the detail of Ms Reeves’ changes before passing judgement.
Britain would need a “notable fiscal effort” to stop debt rising overall, but some borrowing for investment could be appropriate, he said.
06:13 PM BST
Reeves has handed herself an extra £50bn. This is where she could spend it
Rachel Reeves has confirmed plans to adopt new debt rules in the Budget that will allow her to borrow up to £50bn extra to fund investment.
The Chancellor confirmed plans to change the way government debt is measured during a visit to Washington for the International Monetary Fund’s annual meeting.
The Government will adopt a new measure of debt that looks at public sector net financial liabilities, which takes into account the expected future gains from investments rather than just their cost.
Shifting to this measure, rather than public sector net debt, will unlock up to £50bn for the Chancellor, which could be directed towards investment.
Reeves said on Thursday: “It’s not to pay for day-to-day spending. It’s not to pay for tax giveaways. It’s to invest in things to get a long-term return for our country and for taxpayers.”
05:55 PM BST
Tesla pulls up Nasdaq amid mixed day for tech giants
Tesla has soared by 19.8pc this afternoon, helping pushing the Nasdaq up by 0.6pc.
Elsewhere, the other so-called Magnificent Seven stocks are having a mixed day.
Chip giant Nvidia is up 0.1pc, Apple is down 0.3pc, Microsoft is down 0.1pc, Google owner Alphabet is up 0.3pc, Meta is up 0.5pc and Amazon up 1.2pc.
Meanwhile, IBM is down 6.8pc.
05:39 PM BST
Nasdaq jumps as Tesla soars 19.3pc
The Nasdaq jumped on Thursday, driven by Tesla’s positive earnings forecast, which buoyed market sentiment despite declines from other corporate results.
Shares of the company soared as much 19.3pc, with the EV-maker adding more than $100bn (£77bn) to its market capitalisation, after it reported robust third-quarter profits and surprised investors with a prediction of 20pc to 30pc sales growth next year.
Dennis Dick, trader at Canada’s Triple D Trading, which holds Tesla shares, said:
Musk said a lot of things investors wanted to hear - growth rates at double what [Wall] Street had, Robotaxi timelines that were a bit ahead of expectations. It puts confidence back in the stock.
However, sentiment was shaky elsewhere. The Dow Jones fell 0.5pc and the S&P 500 rose just 0.1pc after giving up earlier gains. The Nasdaq rose 0.6pc.
05:27 PM BST
European shares end flat as economic woes overshadow upbeat earnings
European shares gave up early gains to close little changed on Thursday as investors assessed signs of stalling business activity and a raft of earnings from the likes of online gaming group Evolution, carmaker Renault and consumer major Unilever.
The pan-European Stoxx 600 index ended flat following three straight sessions in the red.
Travel and leisure led sectoral gains with a 3.2pc jump to a near seven-month high, as Sweden’s Evolution soared 15% after reporting third-quarter earnings in line with forecasts despite ongoing issues with its Georgian workforce.
Luxury stocks were next in line, with Hermes up 1pc after the Birkin bag maker reported a hefty rise in third-quarter sales. That likely aided Kering’s 2pc gain in the face of the Gucci owner’s 2024 operating income warning.
The automotive sector, which has underperformed through much of the year, got a lift from French carmaker Renault’s 4.7pc rise following an unexpected increase in its quarterly revenue.
Unilever and Danone added 2.9pc and 2.8pc respectively after the consumer goods groups beat third-quarter sales estimates as they slowed price hikes and invested in winning back shoppers who had turned to cheaper brands during a surge in inflation.
The Stoxx had a strong start to the year on expectations of upcoming interest rate cuts by the European Central Bank, but the index has recently stalled as investors mull a stagnating economy, weak Chinese demand and the impact of US elections on the currency union.
Manufacturing powerhouse Germany would be the big loser if a Donald Trump presidency sparked a tit-for-tat trade war between the U.S. and Europe.
Steve Sosnick, chief market analyst at Interactive Brokers, said:
On the plus side, the ECB can be a bit more aggressive with cutting rates, but what it also means is that the economy is not as strong, and ultimately it is the economy that really drives the company’s ability to make money.
05:22 PM BST
Fiscal drag is damaging growth, says Bank rate-setter
Frozen personal tax thresholds are damaging economic growth, a Bank of England rate setter has warned.
Catherine Mann, a member of the Bank’s Monetary Policy Committee, said that people on middle incomes had seen their purchasing power hit not just by goods inflation but because they are now paying higher rates of interest tax.
She said: “This middle income group is an especially important one. They have been exposed to a relatively greater degree to tax-bracket creep.
“Under inflation, more of this group had more of their income creep into a higher tax bracket. This is an important consideration for purchasing power in the current environment.”
She said that the Bank of England had concluded that frozen thresholds were “a significant drag” on economic growth.
Although the Government has pledged not to increase income tax rates, Rachel Reeves, the Chancellor, is reportedly planning to extend a freeze on income tax thresholds in a move that will raise £7bn a year.
This would extend the phenomenon known as “fiscal drag”, where people with the same income in real terms find themselves pulled into high income tax rates as a result of inflation.
04:58 PM BST
FTSE 100 closes up
The FTSE 100 closed up 0.1pc.
The index was led by Barclays, which rose 3.2pc, and Unilever, which gained 2.9pc.
Schroders was the biggest faller, losing 2.7pc, while energy giant SSE lost 2.4pc.
Meanwhile, the mid-cap FTSE 250 lost 0.2pc.
IT supplier Softcat added 10.1pc, while book publisher Bloomsbury rose 8.2pc.
Abrdn lost 11.2pc, while car distributor Inchcape fell 4.7pc.
04:55 PM BST
German finance minister says low tax revenues means no new spending
Germany’s finance minister said this afternoon that modest tax revenues will force the government to restrain spending, fuelling a budget row within Chancellor Olaf Scholz’s three-party coalition.
The German government is split between fiscal hawks, who oppose new borrowing, and proponents of more spending to shake Europe’s biggest economy out of years of stagnation.
“New spending requests cannot be met,” said Christian Lindner of the liberal FDP.
“There is no new scope for manoeuvre in the budget. On the contrary: we will have to consolidate further,” Lindner said in a pointed message to his coalition partners.
He said federal tax revenues for 2024 would be over €3bn lower than predicted, and those for 2025 up only slightly on previous projections.
Total tax revenues for the federal government, states and municipalities are now expected to be €12.7bn lower in 2025 than was forecast six months ago.
The 2025 budget has been the subject of fierce wrangling between Scholz’s centre-left Social Democrats, the Greens of Economy Minister Robert Habeck, and Lindner’s FDP.
Lindner is a passionate defender of Germany’s constitutionally enshrined “debt brake” that caps annual new borrowing at 0.35pc of GDP.
He argues that Germany must cut red tape and rely on private investment rather than state subsidies to boost economic growth.
04:50 PM BST
Global shares rise as strong earnings counteract election worries
Global shares rose today, while strong corporate results help to allay worries over upcoming elections and rate cuts.
Tesla jumped by more than 17pc after boss Elon Musk on Wednesday evening provided a rosy forecast on car sales growth next year that helped to reassure investors.
The Nasdaq is trading higher this afternoon. The Dow was down, while the S&P 500 is flat.
The Dow Jones Industrial Average fell 0.5pc, while the Nasdaq is up 0.4pc.
European shares were also trading up 0.1pc and were set to snap three consecutive sessions of losses amid positive results from Renault, Unilever and Hermes. MSCI’s gauge of stocks across the globe rose 0.3pc.
Michael Farr, chief executive at American wealth manager Farr, Miller & Washington, said:
Markets have traded lower over the past three or four days as a bit of a pause after a huge surge, with most of the equity indexes still trading rather near their all time highs.
04:45 PM BST
Foxtons revenue jumps despite flat rental market
Foxtons shares jumped 3.7pc after London’s biggest estate agency told investors that revenues had jumped 8pc to £47.4m in its most recent quarter.
The growth was driven by home sales, while the company’s revenue from lettings was flat. It noted that “rental prices remain in line with the prior year”.
04:37 PM BST
Reeves commits to get debt down by end of parliament
Rachel Reeves will pledge to get debt falling by the end of this parliament as the Chancellor seeks to reassure nervous investors that she will not go on a borrowing binge.
Ms Reeves signalled on Thursday that she will set a fixed date to get debt down as a share of the economy in her maiden Budget on Oct 30.
The Chancellor also confirmed she will change the debt target in a move that will allow her to borrow up to £50bn more to invest.
In a departure from the previous government’s debt rules, the Chancellor said her fiscal rules would ensure that debt fell “during the course of this parliament”.
The previous government set itself a “rolling” target that a Lords committee recently warned lacked credibility.
That target only required debt to fall between years four and five of a forecast that rolls forward every year.
04:28 PM BST
Barclays and Unilever lift the FTSE 100
Barclays and Unilever lead the list of FTSE 100 risers today, with the banking giant up 4.2pc and the maker of Hellmann’s
mayo up 3pc.
Chris Beauchamp, chief market analyst at online trading platform IG, said:
Good news from Unilever and Barclays has driven the FTSE 100 higher today, though uncertainty around next week’s Budget continues to hobble UK assets overall.
This morning, Barclays reported a forecast-beating 18pc rise in third-quarter profit. Meanwhile, Unilever said that sales rose 4.5pc in the three months to September, versus the same period last year.
04:05 PM BST
Boeing shares drop after workers reject latest offer
Striking workers’ rejection of Boeing’s latest contract offer hit shares across the US aerospace sector this afternoon, raising doubts about the company’s efforts to stabilise its finances and restore its battered image.
Some 64pc of the aeroplane maker’s US West Coast factory workers rejected the offer late on Wednesday, leaving assembly lines idle for nearly all of Boeing’s commercial jets, including the 737 Max.
Boeing shares fell as much as 3.2pc and the company’s leading suppliers also came under pressure, led by Spirit AeroSystems, which lost 3.5pc after warning of redundancies and more furloughs.
“The Boeing circumstances are obviously very challenging. We all saw the results of the vote yesterday night, which is unfortunate,” Honeywell CEO Vimal Kapur said on a call with analysts. The company is a major supplier of cockpit instruments and other parts.
The offer included a 35pc general wage increase over four years but no defined benefit pension plan, which was one of the striking machinists’ main demands.
04:00 PM BST
Sales of new US homes highest in over a year
Sales of new homes in the United States last month exceeded analyst expectations, reaching the highest rate in more than a year on the back of cooler mortgage rates.
Sales of new homes stood at an annual rate of 738,000, seasonally adjusted, 4.1pc up from the revised August figure of 709,000, the US Commerce Department said.
The rate was higher than a consensus of analysts expected.
The September sales rate was also 6.3pc above the figure from September 2023, official data showed.
The property market, which is sensitive to interest rate changes, has taken a hit since the Federal Reserve rapidly hiked rates to ease demand and battle inflation.
But sales of previously owned homes have been more affected as existing homeowners remained reluctant to sell their properties - pushing more buyers into the new homes market and giving it a boost.
03:51 PM BST
Tesla surge drives Wall Street higher, but IBM weighs down Dow
The S&P 500 and the Nasdaq rebounded on Thursday, after Tesla’s upbeat earnings forecast issued last night lifted market sentiment
Shares of the company soared as much as 17.5pc, with the EV-maker adding more than $100bn to its market capitalisation, after it reported robust third-quarter profits.
The optimism spread to other growth stocks, with Nvidia rising 0.8pc and Facebook-owner Meta gaining 0.6c.
IBM, however, lost as much as 7.1pc after missing estimates for third-quarter revenue, weighing on the blue-chip Dow Jones Industrial Average.
Boeing dropped as much as 3.2pc after factory workers voted on Wednesday to reject an offer and continue a more than five-week-long strike.
The Dow Jones Industrial Average fell 0.3pc, the S&P 500 gained 0.2pc and the Nasdaq Composite gained 0.5pc.
Art Hogan, chief market strategist at B Riley Wealth, said:
We’re coming into the day after having sold off a bit every day this week. With yields taking a breather and Tesla’s positive results and guidance, markets may well be able to find some tailwinds after having been down this week.
03:41 PM BST
Dunelm grows in ‘volatile trading conditions’
Dunelm told investors today that sales for the 13 weeks to Sept 28 had risen 3.5pc to £403m despite “volatile trading conditions”.
The homewares retailer said that although it had “yet to see meaningful change in underlying consumer sentiment in our markets”, it had managed to win market share from competitors.
The company highlighted that online sales had risen from 35pc to 37pc, while gross margin had grown by 0.2 percentage points.
Nick Wilkinson, Chief Executive Officer, commented:
We have delivered robust sales growth over the first quarter, offering a wide range of products for the home, at outstanding value, and this continues to resonate with new and existing customers.
Dunelm shares rose 0.8pc.
03:39 PM BST
Travis Perkins became ‘distracted’, says new boss
The new boss of Travis Perkins has said the builders’ merchant has allowed itself to become “distracted” as the group slashed its profit outlook for the second time in three months after another hefty sales fall.
Pete Redfern said:
It is clear that the group has allowed itself to become distracted and overly internally focused, which has led to the underperformance in recent periods.
Mr Refern is the former chief executive of housebuilder Taylor Wimpey, who took on the role heading Travis last month.
Travis, which also owns the Toolstation chain, reported a 6.8pc drop in like-for-like revenues over the third quarter, with sales at the general merchant arm down 8.2pc.
It cut its outlook for full-year underlying operating profits to around £135m after the third quarter woes, having only trimmed it in August to about £150 million.
Shares in the firm dropped 4.5pc.
03:35 PM BST
US bosses more optimistic as Trump predicted to win election
US private sector businesses were the most optimistic in two years, a closely watched survey showed, just as money markets began to predict a victory for Donald Trump in the presidential eleciton.
Optimism about output in the coming year rebounded sharply in October to hit a 29-month high, just a month after sinking to a 23-month low, according to the S&P Global Flash US Composite PMI.
It comes as Polymarket indicates Donald Trump has a 60pc chance of winning the US election, compared to 39pc for Kamala Harris.
The survey showed selling prices increased at the slowest pace in four years, helping the reading of output to rise to 54.3. A reading above 50 indicates growth.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter.
“The October flash PMI is consistent with GDP growing at an annualized rate of around 2.5pc.”
I am heading off now. Alex Singleton will keep you updated for the rest of the day.
03:20 PM BST
Economy faces ‘a lot more inflation’, warns Bank of England policymaker
Britain’s economy still faces “a lot more inflation”, one of the Bank of England’s policymakers has warned.
Catherine Mann, who is known to favour higher interest rates, said the UK’s economic prospects were “still modest” despite “good news” on inflation.
Inflation fell further than expected to 1.7pc in September, which is below the Bank of England’s 2pc target.
However, Ms Mann told a panel in Washington that price deceleration would “not quite” get Britain sustainably to the 2pc in the medium term.
She added there was no prospect of interest rates returning to their pre-pandemic levels, having remained below 1pc since 2009 in the wake of the global financial crisis.
03:06 PM BST
There’s a real sense of doom and gloom, says Telegraph readers
The Chancellor has been accused of “slamming the economy into third gear” with her “doom and gloom” ahead of the Budget, Telegraph readers have said.
Here is a selection of some of their views from the comment section below and you can join the debate here.
02:47 PM BST
Tesla stock up 17pc
Tesla’s stock has jumped more than 16.7pc a day after it forecast surging car sales growth.
The world’s the most valuable carmaker was set to add around $110bn to its market value if the gains hold, making up for a recent erosion on concerns that boss Elon Musk was distracted by new projects like the recently unveiled robotaxi.
Jessica Caldwell, head of insights at car research and buying website Edmunds, said: “He definitely seemed more passionate and invested in it this time.”
02:36 PM BST
Wall Street opens higher amid Tesla surge
The S&P 500 and the Nasdaq opened higher as amid gains in Tesla shares after its optimistic earnings forecast.
Shares of the electric car maker were up 14%.
The S&P 500 rose 20.4 points, or 0.4pc, at the open to 5,817.8​, while the Nasdaq Composite rose 107.5 points, or 0.6pc, to 18,384.16.
The Dow Jones Industrial Average fell 103.65 points, or 0.2pc, at the open to 42,411.30.
02:19 PM BST
We will need to raise taxes to meet Budget debt rules, says Reeves
The Chancellor has said she will need to raise taxes in the Budget to meet the Government’s debt rules.
Rachel Reeves said she would impose a “stability rule” on the public finances that will mean that “day-to-day spending will be matched by revenues”.
In her strongest hint yet that she will change the Government’s debt rules to allow for up to £50bn investment in infrastructure, she said that she will introduce an investment rule that will “make space for increased investment in the fabric of our economy”.
In an article in the Financial Times, she said: “Given the state of the public finances and the need to invest in our public services, this rule will bite hardest.
“Alongside tough decisions on spending and welfare, that means taxes will need to rise to ensure this rule is met.
“I will always protect working people when I make these choices, while taking a balanced approach.”
She also said she would not “cut capital budgets” to cover the cost of the Government’s debt bill.
01:53 PM BST
Tesla poised to drive Wall Street higher
The S&P 500 and Nasdaq are expected to rise at the opening bell after Tesla raised its sales outlook for the year.
Shares of the electric car maker soared nearly 12pc in premarket trading after it reported robust third-quarter profits and surprised investors with a prediction of 20 to 30pc growth in sales next year.
The optimism spread to the other six, with Nvidia rising 1pc, Amazon.com up 0.8pc and Facebook-owner Meta gaining 0.9pc after steep declines on Wednesday.
Tesla was the first of the so-called Magnificent Seven group of major stocks to report, with results from several others awaited next week.
Jim Reid, a senior strategist at Deutsche Bank, said: “The mood turned a bit more positive as Tesla delivered a strong set of Q3 results.
“The automaker is now projecting a slight increase in deliveries for the current year.”
Stocks were also pointing higher after the number of people claiming unemployment benefits fell by 15,000 to 227,000 in the week ending October 19, which was lower than analysts expected.
In premarket trading, the S&P 500 was up 0.5pc and the Nasdaq 100 was up 1pc, although the Dow Jones Industrial Average was down 0.1pc.
01:39 PM BST
London Stock Exchange profits rise as more companies float
The London Stock Exchange Group (LSEG) has grown its profit as the company benefited from an uptick in flotations.
The group, which owns London’s stock market, said it generated a total income of £2.1bn between July and September, up about 9.5pc on last year on a constant currency basis. Its overall profit jumped 10pc to £1.9bn.
The improved performance follows a lacklustre period for London’s stock market which was hit by a dearth of initial public offerings (IPOs) as well as a number of UK-listed firms being bought out or defecting to markets abroad.
However, it revealed income from its capital markets unit surged by more than a fifth, incorporating an increase in equities against a “backdrop of strong market activity”.
There have been some notable IPOs this year, including Raspberry Pi, the hobbyist computer company which buoyed markets with a valuation of about £540m.
On Thursday, sports health business Applied Nutrition kicked off its stock market debut with a valuation of about £350m.
LSEG makes the bulk of its income from its data and analytics arm, where it provides financial markets insights across hundreds of global markets. It uses artificial intelligence (AI) to power some of its analytics tools.
01:13 PM BST
Pound rises as Reeves plans to change debt rules
The pound has risen as Rachel Reeves prepares to announce a rewriting of the UK’s debt rules which would mean the Bank of England keeps interest rates higher for longer.
Sterling was up 0.5pc against the dollar to $1.298 after sliding to its lowest level since August on Wednesday.
It comes as the Chancellor is poised to change how the Government assesses the public finances to allow her to spend up to £50bn on infrastructure projects, according to the Guardian.
As a result, UK bond yields - seen as a yardstick for the cost of government borrowing - have risen as money market traders reduced bets on the Bank of England announcing an interest rate cut in November.
Kenneth Broux, head of corporate research FX and rates at Societe Generale, said: “Higher yields can be a symptom of concern about fiscal policy, but that’s not translating into a weaker sterling, so I would not exaggerate too much about the fiscal concern yet.”
The pound was up 0.3pc against the euro, which is worth 83.2p, as money markets indicate there is a 44pc chance that the European Central Bank could announce an outsized half a percentage point rate cut in December to boost the eurozone’s weakening economy.
12:56 PM BST
John Lewis to teach customers to cook in Jamie Oliver tie-up
John Lewis will teach customers how to cook at its shops under a new deal with Jamie Oliver, as the retailer steps up plans to reinvigorate its department stores.
A new Jamie Oliver cookery school and cafe will open at John Lewis’s flagship Oxford Street shop in the spring as part of a multimillion-pound overhaul.
While the John Lewis Partnership runs a cookery school in west London under its Waitrose brand, it will mark the first time that the department store has hosted lessons.
12:13 PM BST
Thames Water creditors draw up £1.5bn lifeline
A group of creditors to Thames Water have drawn up a £1.5bn plan to rescue the beleaguered water company as it grapples with a £15bn debt pile.
The lifeline from junior creditors’ is separate to plans reported last month involving a group of hedge funds and institutions, which planned to inject more than £1bn into the utility business.
Thames Water has said it only has enough cash to operate until May unless it receives fresh funding.
The latest bid includes a loan of at least £1.5bn from a group of creditors which include investment funds, banks and insurers, according to Bloomberg.
It was reported they have hired Quinn Emanuel Urquhart & Sullivan for legal advice after splitting from a wider group of creditors.
11:57 AM BST
Oil prices rise as US and Saudi Arabia hold talks about Gaza ceasefire
Oil prices have rebounded amid continuing conflict in the Middle East.
Brent rose 1.5pc to more than $76 a barrel, while West Texas Intermediate was up 1.6pc to nearly $72.
US Secretary of State Antony Blinken held talks with Saudi Crown Prince Mohammed bin Salman in Riyadh about efforts to reach a ceasefire in Gaza and Lebanon.
He had earlier traveled to Israel, which has vowed to strike back against Tehran for a missile attack earlier this month.
Vandana Hari, founder of Vanda Insights in Singapore, said: “Mideast tensions and the economic outlook — as a proxy for global oil demand — are the key drivers.”
“Neither is sending any strong signals at the moment, and crude may remain broadly rangebound until that situation changes.”
11:35 AM BST
UK misses out on global bond rally amid Budget fears
Britain’s borrowing costs have risen despite a rally in bonds around the world as the Chancellor is expected to announce she will rewrite the UK’s debt rules.
The yield on UK bonds - the return the government promises to pay buyers of its debt - has risen to 4.23pc today ahead of a speech by Rachel Reeves at the International Monetary Fund’s (IMF’s) annual meeting.
The Chancellor is expected to say she will change how debt is calculated to allow her to spend up to £50bn on infrastructure projects.
UK bond yields have risen in stark contrast to European markets, where debt costs are falling ahead of expected interest rate cuts by the ECB.
The German 10-year bund yield - the benchmark for the eurozone - was down nearly four basis points to 2.27pc.
UK yields rose despite Andrew Bailey, the Governor of the Bank of England, signalling on Wednesday that inflation is coming down faster than expected, indicating that UK interest rates will come further.
Pooja Kumra, head of European rates strategy at Toronto Dominion Bank, said: “If the debt is being increased to stimulate growth — this also means that Bank of England will need to readjust their policy biases.”
Kathleen Brooks, research director at XTB, said: “The market may be reluctant to buy UK bonds until we get past next week’s Budget.”
11:15 AM BST
Crispin Odey rejoins hedge fund after sexual assault claims
Crispin Odey has been reinstated as a director of his namesake hedge fund after departing last year amid claims over sexual misconduct.
The investment tycoon was made a director of Odey Asset Management last month, according to filings at Companies House, on the same day it changed its registered office from its former site in Great Portland Street, London.
His intentions for rejoining are unclear. The firm, once one of London’s best-known hedge funds, last October announced it would wind down its funds as its asset managers moved to rival investment firms.
It comes after the Financial Times last June published allegations about Mr Odey’s treatment of women over a 25-year period.
The allegations concern 13 women who claimed to have been abused or harassed by Mr Odey, eight of whom said they had been sexually assaulted. Lawyers for Mr Odey have “strenuously” denied the allegations against him.
The financier was removed from the business, which managed nearly £4bn in assets, shortly after the sexual misconduct claims emerged.
The Financial Conduct Authority closed an investigation into the hedge fund last December but is still investigating whether Mr Odey is a “fit and proper” person in the financial services sector.
In May, the millionaire financier filed a legal claim against the Financial Times for defamation, libel and slander, according to court filings.
10:52 AM BST
Angela Rayner’s own staff demand four-day week
Civil servants in Angela Rayner’s department have demanded the right to work a four-day week with no loss of pay.
More than 500 public sector workers at the Ministry of Housing, Communities and Local Government have called on managers to institute the change, which has previously been trialled in the private sector and local government.
The members of the Public and Commercial Services union said it would help improve work-life balance and reduce sick leave, the Daily Mail first reported.
10:32 AM BST
Unilever’s sales accelerate after abandoning ‘virtue signalling’ diversity targets
Unilever is the top gainer on the FTSE 100 as sales accelerated amid a turnaround project that has seen it water down “virtue signalling” diversity targets to focus on profits.
The Marmite, Dove and Hellmann’s owner said on Thursday that sales growth accelerated to 4.5pc in the third quarter of 2024, compared with 4.1pc over the first half of the year. Sales hit €15.2bn (£12.6bn) over the three months. The volume of products sold also grew for the fourth quarter in a row.
It comes after Unilever softened its environmental targets and scrapped some diversity pledges following a backlash from investors who accused it of focusing too much on “virtue signalling” rather than making money.
The company’s targets to reduce plastic, improve land health in its supply chain and ensure all the people in its supply chain are paid the living wage have been watered down.
Some diversity targets, meanwhile, such as a vow to increase the number of disabled employees to 5pc of its workforce and to spend around £2bn with “diverse businesses”, have been scrapped.
The changes have been overseen by Hein Schumacher, Unilever’s chief executive, who has been battling to enact a turnaround of the London-listed firm since taking charge in July last year.
Under former bosses Alan Jope and Paul Polman, the company had focused on sustainability and ensuring brands had a “purpose”.
However, this drew the ire of prominent investors including Terry Smith, managing director of Fundsmith, who lambasted the company, saying it had “lost the plot” for trying to “define the purpose of Hellmann’s mayonnaise” at a time when its share price was languishing.
Since taking over, Mr Shumacher has vowed to continue to promote sustainability and purpose, but admitted that management must be more “realistic” about the importance of performance.
10:09 AM BST
Rachel Reeves handed £1.5bn ‘profit’ from Bulb rescue in pre-Budget boost
The Chancellor has been handed a £1.5bn “profit” from the rescue of Bulb after it bailed out the energy supplier.
Octopus Energy revealed it has paid £3bn to the Government following its acquisition of the failed utility company.
The Government was forced to step in when Bulb went bust in November 2021, selling it a year later to Octopus Energy.
The final payment was made on September 30, concluding the bailout without loss to taxpayers or billpayers.
The Office for Budget Responsibility had previously warned that the rescue could cost £6.5bn.
Greg Jackson, chief executive of Octopus Energy, said: “This outcome is a remarkable success story for taxpayers and billpayers.
“I’m proud that when other companies walked away or banged their fists on the table, Octopus worked hard to find a fair deal which saved the Treasury billions compared to alternatives. I hope this is a model for future deals between government and companies.”
09:47 AM BST
Private sector grows at slowest pace this year as ‘gloomy’ Reeves hurts confidence
Britain’s private sector has grown at its slowest pace in 11 months as the “gloomy” rhetoric from the Chancellor ahead of the Budget dented confidence, a closely watched survey showed.
The S&P Global Flash UK PMI gave a reading of 51.7, which still indicates output from UK companies grew but at its weakest pace since November 2023.
Bosses said clients were delaying decisions amid heightened economic uncertainty ahead of the Budget on October 30, when Rachel Reeves is expected to raise taxes.
Companies axed jobs in response, with overall staffing numbers decreasing for the first time in 2024.
Chris Williamson, chief business economist at S&P Global Market Intelligence, said:
Business activity growth has slumped to its lowest for nearly a year in October as gloomy government rhetoric and uncertainty ahead of the Budget has dampened business confidence and spending.
09:27 AM BST
Pension giants not investing in Britain’s ‘real economy’, admits Bailey
Andrew Bailey has warned the Government not to force pension funds to invest in British assets.
The Bank of England Governor said he would not “for a moment” support the idea of forcibly making pension funds back British companies, even as he conceded that policymakers had “a lot of work to do” to improve outcomes for savers.
Speaking at the Institute of International Finance, Mr Bailey said there was an urgent need to harness Britain’s fragmented pensions system to support the UK economy.
09:10 AM BST
French and German struggles leave eurozone economy ‘stuck in a rut’
The eurozone’s private sector suffered a slump in activity for a second month in a row as growth was dragged down by France and Germany, a closely watched survey showed.
The single currency region’s two largest economies have both continued their downturns in October, according to the HCOB Flash Eurozone PMI.
Overall business activity gave a reading of 49.7, below the 50 mark separating growth from contraction for the second month in a row amid weakening demand and a slump in new orders down for the fifth consecutive month.
Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
The eurozone is stuck in a bit of a rut, with the economy contracting marginally for the second month running.
08:58 AM BST
Unilever leads charge on FTSE 100 as it abandons plan to ‘save the world’
The FTSE 100 has been boosted by strong company updates and rising oil prices as Unilever showed the first signs of benefitting from its turnaround plan.
The UK’s blue chip index was up 0.7pc to 8,313.64 while the midcap FTSE 250 gained 0.1pc to 20,856.83.
Consumer goods giant Unilever was the biggest force behind the move higher, with shares gaining 3.2pc after its sales beat expectations as its boss shifted its focus away from corporate ESG pursuits.
Meanwhile, energy giants Shell and BP gained 0.8pc and 3.8pc, respectively, as oil prices rose 1.2pc to more than $75 a barrel.
Barclays was the biggest gained on the FTSE 100, rising by by 3.5pc as its profits jumped by nearly a fifth in the three months to September.
Anglo American was up 3.3pc after it said it is considering cutting diamond production from De Beers.
Investors will keep an eye on an appearance by Chancellor Rachel Reeves at the IMF annual meeting in Washington later, where she is expected to announce a rewrite of the UK’s debt rules.
08:39 AM BST
Applied Nutrition floats with valuation of £350m
Sports health business Applied Nutrition has priced its stock market debut at around £350m, near the lower end of its guided range.
The group, which is backed by retailer JD Sports and has attracted investment from billionaire retail mogul Mohsin Issa, has priced its initial public offering (IPO) at 140p a share.
It had said last week it was targeting a price range of between 136p and 160p per share for the IPO.
The group kicked off conditional trading of shares on the London Stock Exchange on Thursday, with unconditional trading expected to start next Tuesday.
Thomas Ryder, chief executive of Applied Nutrition, said: “As a homegrown UK business based in Knowsley, Liverpool, we could not be prouder to be listing on the London Stock Exchange.
“We are only scratching the surface of our growth opportunity and this IPO positions us ideally for the next step of our development,” he added.
08:24 AM BST
Bond yields rise as Reeves expected to change debt rules
Britain’s bond markets slumped in early trading as Rachel Reeves is expected to announce changes to UK debt rules to allow her to spend up to £50bn on infrastructure projects.
The yield on 10-year UK gilts - which moves inversely to its price - rose six basis points at the open to 4.26pc, while all other major European bond coupons were lower.
It comes as the Chancellor is poised to announce reveal she will rewrite Britain’s debt rules during an appearance at the IMF annual meeting today, according to the Guardian.
08:06 AM BST
UK markets open higher amid rising oil prices
The FTSE 100 opened higher as rising oil prices boosted its heavyweight energy stocks.
The UK’s blue-chip stock index gained 0.4pc to 8,293.57 while the midcap FTSE 250 rose 0.2pc to 20,872.17.
07:51 AM BST
Mike Ashley launches boardroom coup attempt at Boohoo
Sports Direct owner Frasers Group is looking to appoint its founder Mike Ashley as chief executive of the struggling online fashion firm Boohoo.
Frasers - which is Boohoo’s largest shareholder with a 27pc stake - is calling for a meeting of Boohoo investors to back its plans to appoint Mr Ashley, claiming it is “in the best interests of Boohoo, its shareholders and its stakeholders”.
The retail group said Mr Ashley could take on the role, replacing outgoing Boohoo chief executive John Lyttle “without delay”, while it also wants restructuring expert Mike Lennon to join the board.
Frasers said: “The board appointments proposed by Frasers are now the only way to set a new course for Boohoo’s future.”
Boohoo said it was reviewing the request and would make an announcement in due course, but urged shareholders to take no action.
07:42 AM BST
Reeves to re-write debt rules to borrow £50bn
Rachel Reeves is expected to announce today plans to rewrite Britain’s debt rules to allow her to spend up to £50bn on infrastructure projects.
As reported by the Telegraph last month, the Chancellor is poised to announce changes to how debt is calculated to take into account investment spending.
She will reveal at the International Monetary Fund’s annual meeting in Washington today that she has a new method for assessing the UK’s debt position, which will allow the Treasury to borrow more for long-term capital investments, according to the Guardian.
07:33 AM BST
Unilever sales surge as it abandons ‘virtue-signalling’
Consumer goods giant Unilever revealed improving sales after it abandoned efforts to “save the world” earlier this year.
The group, which owns a host of brands from Cif to Marmite, said underlying sales grew by 4.5pc in the third quarter, which was ahead of analyst forecasts of 4.3pc.
It gave the company turnover of €15.2bn (£12.7bn) as it embarks on a shake up that will see it sell-off its ice cream division.
The company abandoned efforts to “save the world” after a backlash from investors over “virtue-signalling” that included giving Hellmann’s mayonnaise a social purpose.
The consumer goods giant, which also owns Dove, Magnum and Ben & Jerry’s, atered down green targets and scrapped some diversity pledges after investors told it to focus more on profits and less on social and environmental issues.
07:19 AM BST
Barclays boosts profits to £2.2bn amid cost cutting
Barclays has revealed higher-than-expected earnings for the third quarter, as it generated more income from its investment bank and cut its costs.
The bank reported a pre-tax profit of £2.2bn between July and September, nearly a fifth more than the £1.9bn made this time last year.
This beats forecasts, with analysts previously pencilling in a third-quarter profit of about £2bn.
Barclays said it generated more income than last year, partly due to a 13pc jump in income from its investment banking division amid higher fees for some services.
It also continued its cost-cutting drive, with £300m of savings made over the latest period.
06:53 AM BST
Starmer insists Budget will not push entrepreneurs from UK
Entrepreneurs will find “no reason” to want to leave the UK following next week’s Budget, Sir Keir Starmer has said.
The Prime Minister hailed the October 30 fiscal event as an historic moment, describing it as Labour’s first chance to “define the way in which we will approach the economy” after 14 years in opposition.
But amid reports that the Government could raise capital gains tax, putting off business start-ups and foreign investors alike, Sir Keir is confident the UK’s inward flow of cash will continue to grow.
Asked if he thinks entrepreneurs may want to leave the UK following reported tax increases in the Budget, Sir Keir told reporters: “There is no reason for them to.”
Speaking while travelling to Samoa for a meeting of Commonwealth leaders, the Prime Minister pointed to the recent UK investment summit he hosted as an indicator of mood music among investors.
“All the feedback back to us has been that it was very well received by a significant number of global investors,” he said.
Asked for his thoughts on the significance of the Budget, he said: “Is it going to be an important Budget? Yes, it is.
“It’s the first one for 15 years. the first Labour Budget. It’s our first opportunity to define the way in which we will approach the economy, and that’s why I say we will fix the foundations and rebuild the country.”
06:49 AM BST
Confidence hits new low ahead of the Budget
Consumer confidence has fallen to its lowest level so far this year, according to PwC’s tracker of household sentiment.
The index dropped particularly sharply for over-65s, who are now the most downbeat age group in the country for the first time since 2016.
PwC said the drop in confidence was likely fuelled by anxieties surrounding potential tax hikes and benefit reductions, short term increases in energy and food price inflation, alongside broader political and geopolitical uncertainties.
It comes after Ms Reeves scrapped winter fuel payments for those households not in receipt of pension credit.
Separately, economists at the EY Item Club slashed their outlook for the UK growth this year and warned that significant tax rises in next week’s Budget risked further slowing the recovery.
The economy is set to grow by 0.9pc this year, 1.5pc next year and the same again in 2026, the analysts predicted. It compares with predictions in the summer that growth would pick up to 1.1pc this year before registering at 2pc in both 2025 and 2026.
Economists added that there was a “downside risk to the growth outlook” as “this Budget may need to put in place today tax rises, to fund additional future increases in day-to-day spending.”
06:40 AM BST
Good morning
Thanks for joining us. There is less than a week to go until the Budget and consumers are feeling the least confident all year.
Over 65s are now the most downbeat age group in the country, according to PwC, after Rachel Reeves scrapped winter fuel payments for households not receiving pension credit.
The Chancellor is expected to announce a host of tax rises in the Budget on October 30 as part of a £40bn plan to shore up the public finances.
5 things to start your day
1) Andrew Bailey: Don’t force pension funds to invest in Britain | The Bank of England chief urged reform of the ‘quite fragmented’ pension industry
2) Rayner to give union members twice as much time to strike | Workers’ rights reforms could give unions a year-long mandate to strike
3) How Silicon Valley is sparking a new nuclear age | Bill Gates is bankrolling big tech’s AI-fuelled demand for power
4) Britain in ‘real danger’ of flood of HS2-style white elephants | Ministers’ flip-flopping on major projects must stop, warns boss of BAM UK and Ireland
5) Sam Ashworth-Hayes: It’s time for the young and ambitious to leave Britain | Rachel Reeves’s Budget will herald a new era of unprecedented state command and control
What happened overnight
Shares retreated in Asia after a third straight day of losses on Wall Street as its long, record-breaking rally lost more steam.
Japan’s benchmark Nikkei 225 shed early gains, trading flat at 38,104.86 as purchasing manager indexes showed worsening conditions in Japan for both manufacturing and services. The overall composite PMI compiled by au Jibun Bank fell to a two-year low.
Chinese markets also fell, with Hong Kong’s Hang Seng losing 1pc to 20,555.04 while the Shanghai Composite index shed 0.5pc to 3,286.17.
In Seoul, the Kospi gave up 0.2pc to 2,593.57 and Australia’s S&P/ASX 200 edged 0.1pc higher to 8,225.90.
Taiwan’s Taiex lost 0.5pc and the Sensex in India edged 0.2pc lower.
On Wall Street, all three main indexes finished lower yesterday. The Dow Jones Industrial Average fell 1pc to 42,514.95, the S&P 500 fell 0.9pc to 5,797.42 and the Nasdaq Composite fell 1.6pc to 18,276.65.
In the bond market, the yield of 10-year US Treasury notes rose to 4.243pc from 4.231pc late on Tuesday.